The Shareholder Value Implications of Data Breaches

Abstract

Digitalization in operations and supply chain management entails various opportunities for performance improvement. However, the increasing reliance on data introduces new risks for firms, such as data breaches. In this study, we assess the financial implications of data breaches and identify a set of factors influencing these implications. Based on a sample of 219 data breach announcements by publicly traded U.S. firms, we conduct an event study to examine the stock market reaction to data breaches. We further estimate a series of regression models to identify important influencing factors in the stakeholder environment of the firm, including several robustness checks and post-hoc analyses. We find a significantly negative stock market reaction to announcements of data breaches within a two-day event window. Our post-hoc analysis indicates a sustained negative impact on shareholder value. The negative stock market reaction is stronger when customer data is breached, the breach occurred along the supply chain, and the firm receives more media attention in general. This study adds to the emerging topics of cyber risk in operations and supply chain management, and to the literature on data breaches specifically.